States, Online Retailers, Congress Set Stage for Sales Tax Case
An online sales tax case before the Supreme Court, South Dakota v. Wayfair (see 1803080066), has divided members of Congress and pitted online retailers against more than 40 states. Central to the case is whether online sellers can be required to collect the same sales taxes as local stores. The high court could decide whether to repeal 1992's Quill v. North Dakota decision, which established that sales tax laws were too complicated for retailers to know how much tax to collect unless they were physically present in the customer’s state. Oral argument will be April 17.
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South Dakota has no state income tax and relies on retail taxes for much of its revenue, the state argued in its Oct. 2 writ of certiorari petition, noting the “low-density, rural population has a particularly strong incentive to take advantage of tax-free sales from internet retailers.” Colorado, 40 other states, two territories and the District of Columbia backed South Dakota, arguing against “artificial barriers that currently block the efficient and full collection of owed tax revenue or infringe their sovereign authority to enforce their tax laws.” South Dakota also has the support of the federal government, which argued that states “have ample authority to require those retailers to collect state sales taxes owed by their customers.”
Montana and New Hampshire sided with the online retailers, Wayfair, Overstock and Newegg, which argued the court should defer to Congress. “Intervention by the court into [Congress’ efforts] would only thwart the prospects for a lasting legislative solution,” the companies said. New Hampshire claimed if states are “concerned about their present inability to impose antiquated sales and use tax laws on large Internet retailers, they must employ innovative, legislative solutions” or convince Congress to set a precedent.
Reps. Bob Goodlatte, R-Va.; Jim Sensenbrenner, R-Wis.; Anna Eshoo, D-Calif.; and Steve Chabot, R-Ohio, and Sens. Ron Wyden, D-Ore., and Mike Lee, R-Utah, made similar arguments in favor of the retailers. The lawmakers asked the court not to give up on congressional efforts and deny review of the case. The House Judiciary Committee has written draft legislation that would balance competing interests, Goodlatte said.
Sens. Heidi Heitkamp, D-N.D.; Lamar Alexander, R-Tenn.; Dick Durbin, D-Ill.; and Mike Enzi, R-Wyo., are backing South Dakota. “Commercial interstate interests have had considerable success in persuading Congress to pass balanced laws that have served to streamline their interactions with state and local revenue authorities while protecting legitimate state interests,” they said.
The Computer & Communications Industry Association, Etsy and Americans for Tax Reform sided with Wayfair. Etsy argued microbusinesses will suffer the most if the court reverses Quill, while CCIA said online services already collect taxes in host states, and changing that precedent opens the door for additional tax burdens in foreign countries. “The digital economy has been growing at a rate of 5 percent a year, and changes to online taxation could inhibit investment and innovation in this sector,” CEO Ed Black said.